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Anyone who’s ever tried to hail a cab in the rain can appreciate the convenience of Transportation Network Companies (TNCs) like UberX, Lyft, and Sidecar. These companies are based on a similar model: ordinary drivers use their own cars to transport passengers, who use their smartphones to request a ride. (To clarify, UberX is a ridesharing service launched by Uber in 2012. The company also offers a range of higher-priced Uber car services using professional drivers.)

Seems like a great way for regular folks to earn a little extra cash. And the ridesharing aspect means fewer cars on the road. So everyone wins, right?

Not exactly. Critics complain that TNCs take business away from cab drivers (as well as profits, since cabbies have to pay for commercial insurance). There’s also been controversy regarding Uber’s policy of raising prices at peak times. And, in January 2014, Uber was named in a wrongful-death lawsuit involving a 6-year-old girl struck and killed by an UberX driver on New Year’s Eve in San Francisco. Though the driver wasn’t carrying a passenger, the lawsuit claims he was logged into the UberX app at the time and was distracted by checking his phone for a fare.

Then there’s the question of insurance. And it’s a big one.

TNC drivers could face coverage gaps

In September 2013, the California Public Utilities Commission (CPUC) established new rules, defining a TNC as “a company or organization operating in California that provides transportation services using an online-enabled platform to connect passengers with drivers using their personal, non-commercial vehicles.” It concluded that TNCs are “providing passenger transportation for hire,” which is a livery service.

Most standard auto policies don’t provide coverage for livery vehicles — if you use your vehicle for business purposes, you need commercial car insurance. But many TNC drivers are unaware of this.

Though TNCs are now required to carry $1 million in liability insurance, this coverage is designed to protect riders and pedestrians and pay for damages to other vehicles. The policy doesn’t have to cover the driver’s car or the driver’s injuries (and it doesn’t kick in at all unless the TNC driver is found at fault). And because of the livery exclusion, the driver’s standard personal insurance likely won’t cover accidents either. So, instead of adding to their income, the TNC driver could be left holding the bag.

There’s also disagreement about what constitutes “working” for a TNC. Uber claims no responsibility for the New Year’s Eve accident because the driver wasn’t carrying a fare. But, from an insurance standpoint, if a TNC driver is available through the app, they’re driving as a livery service and therefore won’t be covered.

Esurance and TNCs

Though we can’t speak for all insurance companies, the livery exclusion is pretty universal. According to our definitions of coverage, TNC drivers would need commercial insurance since a personal auto policy through Esurance doesn’t cover both personal and commercial use of a vehicle. In all states except California, we’re unable to offer a standard policy to TNC drivers. And in California, the driver’s standard coverage doesn’t apply during a rideshare trip.

If you’re driving for a TNC, the California Department of Insurance urges you to contact your insurance company and see if there are gaps in your coverage that are putting you at risk. You might be better off with a commercial policy. (Esurance doesn’t offer commercial auto insurance, but you can get it through our partner.) Since Lyft is already available in 20 cities (and UberX in dozens), this is good advice no matter where you live. If you live in California, Esurance’s ShareSmart ridesharing insurance can cover gaps in your personal auto insurance policy.

Keep in mind that carpools or commuter rideshare programs (where drivers give unfamiliar passengers rides to work in order to take advantage of carpool lanes) aren’t subject to the livery exclusion. The CPUC has determined that traditional carpools don’t qualify as TNCs. If you aren’t making a profit from carpooling, it’s not considered a business, even if your passengers contribute to the cost of gas and tolls.

What’s next for UberX and other TNCs?

Services like UberX are a new and unique creation, and deciding how to regulate them has posed some challenges. California was the first state to coin the term “Transportation Network Companies” and institute a formal set of rules for TNCs. These new regulations may set a precedent for other states and municipalities going forward, and in fact, a bill that would classify these companies as TNCs is currently moving through the Colorado Senate. But the controversy involved with the wrongful-death lawsuit shows that the issue of liability is far from resolved.

Some TNCs have addressed the liability gaps by working with insurance carriers and voluntarily adjusting their coverage. Lyft, for example, recently announced additional coverage for their drivers in 3 categories: collision, uninsured motorist, and underinsured motorist.

Look for more posts on this topic as the situation evolves.

UPDATE: Since this post was written, Uber and Lyft have announced extended liability coverage for their drivers. However, insurance regulators throughout the country have expressed concerns that serious coverage gaps still exit. The California Public Utilities Commission is expected to weigh in soon — we’ll keep you posted.

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about Ellen

Ellen has spent many years as a professional wordsmith, helping to shed light on such topics as world travel, cargo pants, and the porosity of bath tiles. As a freelance copywriter for Esurance, she brings her boundless curiosity to the world of insurance. Outside work, she can be found cheering on the San Francisco Giants, hiking in the Oakland hills, and (barely) resisting smuggling penguins home from Antarctica.